Banking Interpretations

NYSBL 108(4) and 354(b) and Gen Oblig Law 5-501 and 5-328

January 11, 2005

Dear [ ]:

The answers to your four questions are as follows:

  1. Section 5-501(3)(b) of the General Obligations concerns loans secured by one-to-six family homes or certificates of stock in a cooperative corporation and indicates that no prepayment penalty on such loans may be imposed after the first year. Section 108(4)(e), which relates to the personal loan authority of commercial banks, indicates that borrowers may prepay such a loan "in full without penalty." Although most residential real estate loans are made pursuant to the authority in sections 103(4) and 103(4-a) because those sections contain provisions that are more favorable to lenders, such loans may also be made under section 108(4) under the terms and conditions set forth therein. Given that Section 5-501(3)(b) is prefaced by the phrase "notwithstanding any other provision of law", unlike section 108(4)(e), it would appear that the restrictions on prepayment penalties in section 5-501(3)(b) would be applicable to loans made under section 108(4).
  2. Section 108(4) gives broad personal loan authority to commercial banks. Under that section, banks may make both secured and unsecured loans at deregulated rates (up to 25% per annum) subject to the terms and conditions set forth therein. The only security that may not be taken under this section is a bank deposit. Late fees are not only contained in section 108(4)(c) but also may be found in other subdivisions of section 108, which relate to other types of loans. Certain other sections of the Banking Law and other laws affecting entities regulated by the Banking Department, such as the Personal Property Law, have provisions that impact the imposition of late fees.
  3. When you refer to the fee limitation on revolving credit lines offered by licensed lenders in "section 351 (b)", I presume the reference is to section 351(6)(a) of the Banking Law. This is the only limitation on such a fee.
  4. Considering that section 5-328(2) of the General Obligations Law is prefaced by the phrase "notwithstanding the provisions of any law", it would appear that the limitation therein would apply to all types of consumer loans. If any law relating to consumer loans had a conflicting provision and was also similarly prefaced, then the rules of statutory construction would apply. I am not aware of any other such law that contains a conflicting provision.

I trust that the foregoing is of assistance to you.

Steven Barras